Yield Curve Scare Will Benefit Gold
The comments below are an edited and abridged synopsis of an article by Clif Droke
While gold bulls are fighting off an attempt by sellers to break the metal’s 6-month rising trend, the yellow metal is being supported by economic fears. The latest involves the near-inversion of the US Treasury yield curve. Many see this as a sign that the US economy is on the verge of recession. Droke discusses the latest signals from the Treasury market as they pertain to gold’s flight-to-safety demand. He says that, even with a volatile US dollar, gold’s fear factor will fuel its continued recovery.
Up for discussion: volatility in the currency market; elevated fears among investors over the global economic and financial market outlook; and the latest Brexit delay.
The increased safety-related demand that gold has had is clearly visible in the April 2019 gold futures contract graph. April gold is about to climb back above its 50-day moving average. A weekly close above the 50-day MA would confirm a positive shift in gold’s intermediate-term trend. Since many fund managers and investors use the 50-day MA as a variable in their decision-making criteria, the psychological significance of gold closing above that can’t be underestimated. A weekly close above the 50-day MA would likely trigger another round of short covering.
With higher interest rates no longer threatening gold, investors have another reason for expecting higher prices ahead. Moreover, as the US Treasury yield curve verges on inverting, it should act as a stimulant for gold’s flight-to-safety demand among nervous investors. We should see gold respond to this increasing fear factor by breaking out of its trading range of the last two months and continuing the recovery that began in October.